New York Attorney General Investigation Ends Generic Pharma “No Challenge” Deal

Investigation by Eric T. Schneiderman, Attorney General of the State of New York, Concerning an Agreement Between Competing Pharmaceutical Companies to Not Challenge Each Other's Sole First to File Exclusivity

Assurance (No. 14-034)

In 2010, Teva Pharmaceuticals USA, Inc. (“Teva”) and Ranbaxy Pharmaceuticals, Inc. (“Ranbaxy”), both manufacturers of generic pharmaceuticals, entered into an agreement related to atorvastatin calcium, the generic version of Lipitor®, which is used to treat high cholesterol. The agreement focused on future sales of atorvastatin calcium and included a provision stating that both parties would refrain from challenging each other’s regulatory exclusivity rights for all of their drugs subject to applications filed with the Food and Drug Administration (“FDA”), as of the date of the agreement. In late 2012, the Office of the Attorney General of the State of New York (“OAG”) initiated an investigation into whether this “no challenge” provision constituted an unlawful anticompetitive agreement. This investigation resulted in a February 11, 2014 Assurance issued by the OAG, and signed by the parties, which found that the “no challenge” provision constituted “an unreasonable agreement between direct competitors not to compete, unlawful under the antitrust laws.”

The agreement between Ranbaxy and Teva addressesthe regulatory exclusivity awarded to the first manufacturer that seeks to market a generic version of a brand manufacturer’s drug prior to expiration of the brand manufacturer’s patents. This “first to file” exclusivity protects the generic manufacturer from competition from other generic manufacturers for a period of 180 days. If a competing generic manufacturer believes that the “first to file” generic manufacturer is not entitled to exclusivity (for instance, if it were mistakenly awarded, or had been lost or forfeited), the competitor may challenge the award by petitioning the FDA or filing litigation. If the challenger successfully shows that a party holding sole “first to file” status should forfeit its exclusivity, then usually all generic manufacturers with FDA approval will be able to compete during the 180-day period. Thus, these challenges, if successful, benefit consumers by more quickly lowering generic prices.

In this case, Ranbaxy and Teva agreed that each would not challenge the other party’s “first to file” exclusivity rights over the term of the agreement plus two years. Although the atorvastatin agreement related to the sale of only one drug, by including the “no-challenge” commitments as part of that agreement, Ranbaxy and Teva each agreed to shield their ANDAs from any attack by the other, according to the OAG. The OAG further found that this agreement artificially protected each company’s market positions for numerous drugs where one of the parties held sole “first to file” status, and reduced the chances that consumers would benefit from increased generic competition on an earlier date. The OAG concluded that the “no challenge” agreement was not necessary for the success of the atorvastatin arrangement, nor was such a provision required to permit the parties to share confidential information.

The settlement with the Attorney General requires the parties to terminate the “no challenge” agreement, refrain from entering into similar agreements in the future, and make monetary payments to New York State totaling $300,000.

The Attorney General’s case against Ranbaxy and Teva is the latest example of recent legal action brought by governmental institutions, including the Federal Trade Commission and other state attorneys general offices against allegedly collusive “pay for delay” agreements. “Pay for delay” cases involve a generic manufacturer’s agreement to drop a challenge to patents covering a brand manufacturer’s drug and accept a delayed entry date, in return for compensation. This case involved an agreement between generic drug manufacturers to maintain the status quo regarding the 180-day exclusivity period for a number of drugs on both sides. The OAG believes that this sort of agreement is either per se unlawful or, at a minimum, presumptively unlawful, regardless as to whether any real-world anticompetitive effects can be proved to have been caused by such an agreement.

Notably, the OAG identified no nexus between New York and the parties. Accordingly, pharmaceutical companies must be careful drafting any contract provisions where the result is an agreement not to challenge another party’s exclusivity.

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